Mish's Global Economic Trend Analysis |
- Australia Cuts Rate .25%, Core Inflation on Weakest Pace in 14 years; China PMI Lowest in 3 Years; Wen Pledges to "Firmly" Maintain Property Curbs
- Merkel Sells Soul for Applause from the Devil
- Papandreou Calls for Voter Referendum on EU Debt Deal
- In 2009, Greek Debt-to-GDP was 127%; Target for 2020 is now 120%; Is this Progress?
- Dear Christina: Reflections on Economic Fools and the Policies they Espouse
- Europe to Recapitalize Banks Without Raising any Capital; Berlusconi Defiant as Focus Shifts to Italy; Sarkozy Under Fire for Seeking China’s Help
| Posted: 31 Oct 2011 11:23 PM PDT The Reserve Bank of Australia cut rates .25% as housing weakens and core inflation was a tame .3%, the lowest in 14 years. I have been saying for quite some time the next move would be a cut, and here it is. I expect more, as do interest rates futures, but some others do not see it that way. Please consider RBA rate cut sparks bank response The Reserve Bank of Australia has cut interest rates for the first time in more than two and a half years, bringing relief to households and corporate borrowers.Expect Australian Dollar to Weaken The Australian dollar weakened from 1.10 to .94 in the "risk off" trade but soared back to 1.06 in October in the "risk on" trade. If Australian housing and retail sales weaken, and I expect both will, look for more cuts by the RBA, sooner, rather than later. In turn, rate cuts will put downward pressure on the Australian dollar. China PMI Drops to Lowest in Almost 3 Years Bloomberg reports China PMI Drops to Lowest in Almost 3 Years A Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world's second-biggest economy.Weakening PMI Suggests Weakening Commodity Prices Exports are down because of the slowdown in both Europe and the US. Europe is clearly in recession, the US headed towards recession. Moreover, the Chinese slowdown suggests more weakness to come in commodity prices which should be good for the US dollar. Chinese PM Pledges to 'Firmly' Maintain Curbs Bloomberg reports China's Property Stocks Decline as Wen Pledges to 'Firmly' Maintain Curbs China property stocks fell for the first time in six days in Shanghai trading after Premier Wen Jiabao doused speculation the government will ease curbs on the industry.Expect Property Bubble Implosion I will side with Chanos over Roach. China's property bubble is the largest in the world and it will crash hard. Once again, the bursting of the Chinese property bubble as well as the credit bubble suggests more weakness to come in commodity prices. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Merkel Sells Soul for Applause from the Devil Posted: 31 Oct 2011 06:58 PM PDT German Chancellor Angela Merkel Merkel went out of her way to prove she is just like the vast majority of vote-buying hypocrite politicians willing to say or do anything to advance personal agendas and get reelected. Those looking for proof can find it in Der Spiegel article Another U-Turn For Merkel. Chancellor Angela Merkel has performed another big U-turn by calling for a minimum wage, which she had opposed until now. She is sharpening her party's social profile in response to the euro crisis -- and, possibly, to secure her power by preparing another 'grand coalition' with the Social Democrats.Reflections on Integrity and Core Principles So much for agreements, integrity, and core principles. Things change of course, but core principles shouldn't, at least not on a routine basis. With this latest U-turn, Merkel just made it perfectly clear she has no core principles, that everything is for sale, including her soul and her integrity. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Papandreou Calls for Voter Referendum on EU Debt Deal Posted: 31 Oct 2011 01:35 PM PDT In an extremely risky move, Papandreou calls for referendum on EU debt deal Prime Minister George Papandreou has stated his intention to hold a referendum on last week's agreement in Brussels for Greece's bondholders to accept a 50 percent haircut and the country to receive some 130 billion euros in loans from its eurozone partners.Things will become unglued in a hurry if Greek voters decide to tell the EU where to go. Moreover, but less importantly, Papandreou just may not survive the next vote of confidence. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| In 2009, Greek Debt-to-GDP was 127%; Target for 2020 is now 120%; Is this Progress? Posted: 31 Oct 2011 12:50 PM PDT Depending on your point of view, your holding of Greek debt, and whether or not you live in Greece, here is a humorous (or not so humorous) Google Translation on the Past and Future of Greece. Based on official data from the Eurostat in 2009, when was the last census that pushed the deficit above 15%, Greece's debt was 127% of GDP. Today, the Government is making earnest efforts to pull Greece out of the crisis according to statements of Chancellor Angela Merkel, mortgaging much to get the debt-to-GDP ratio to 120% by 2020.All Pain and No Gain The author, George Kouros perfectly describes the ramifications of stretching out debt for a decade in pretense that a 50% "voluntary" haircut on bonds will solve anything. Greece surely does need structural reforms, but the average Greek on the street sees all pain and no gain. A hard default and debt forgiveness of 80% by the EU would show Greek citizens they were at least getting something in return for forced (but badly needed) structural reforms and austerity measures. Instead, the average Greek understands everything is being done to protect German and French banks, and anything that helps Greece is nothing but a fortuitous accident. Moreover, by fooling itself, the EU hurts itself. The longer the EU pretends haircuts are voluntary, that Greece can pay back these loans, and that Greece can be competitive with Germany, and there will be no hard default, the worse the crisis will become. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Dear Christina: Reflections on Economic Fools and the Policies they Espouse Posted: 31 Oct 2011 09:10 AM PDT The New York Times headline reads Dear Ben: It's Time for Your Volcker Moment. I expected the article to be about inflation. It starts out as such, praising Volcker for his commitment to lower inflation. A third of the way through came an innocuous looking sentence "Mr. Bernanke needs to steal a page from the Volcker playbook." From there it went straight downhill. Here are a few snips ... To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.Who is this Monetarist Fool? At that point I stopped reading and asked "who is this monetarist fool?" I went to the bottom of the article to find out it was none other than Christina D. Romer, an economics professor at the University of California, and former chairwoman of President Obama's Council of Economic Advisers. Dear Christina ... In case you have not noticed, interest rates are zero percent. The Fed cannot lower them any further. The Fed can of course print, but in case you did not notice again, the Fed already tried that and all it did was increase the price of food, gasoline, gold, and the stock market. Moreover, and in case you did not notice, here is a chart of excess reserves sitting at the Fed.  You see Christina, there is 1.6 trillion dollars parked at the Fed already. Printing money in and of itself does nothing if it just sits there. Moreover, and in case you did not notice, Japan over a 20 year period tried both quantitative easing and Keynesian stimulus (fiscal spending), and that did not stop Japan's deflation. All Japan did was dig itself a 200% debt-to-GDP hole that will at some point destroy the country. Bernanke, a Complete Dunce, "Puzzled by Weak Consumer Spending" On September 8, 2011 Bernanke said he was "surprised by how cautious consumers remain more than two years since the recession officially ended." I responded with Bernanke, a Complete Dunce, "Puzzled by Weak Consumer Spending" It does not take a genius to understand why consumer spending is weak.Change of Heart in Bernanke? Christina, in case you did not notice, here are a few sentences by Chairman Ben S. Bernanke, Before the Joint Economic Committee, U.S. Congress, Washington, D.C., on October 4, 2011, regarding Economic Outlook and Recent Monetary Policy Actions ... Fiscal policymakers face a complex situation. I would submit that, in setting tax and spending policies for now and the future, policymakers should consider at least four key objectives. One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. ...Dear Christina, please read those three paragraphs closely. What is it you fail to understand about all three of them, but especially the last one? Bernanke, like yourself is a dyed-in-the-wool monetarist, who hopefully (and at long last) may realize that monetary policy is next to useless at this juncture. Hello Ben Bernanke, Meet "Stephanie" Dear Christina, I also invite you to read Hello Ben Bernanke, Meet "Stephanie". The article is about an email from "Stephanie" who wrote about the difficulty of living on fixed income with rising prices and getting 0% on CDs. I responded that "Bernanke is a Coward Hiding Behind Mathematical Formulas", that he did not know what he was doing in 2006 and he does not know now. Here is one key snip ... Fed's Policy Is TheftCurrency Cranks Agree With Themselves Christina, I read your reference to The Case for a Nominal GDP Level Target by fellow monetarists Jan Hatzius Sven and Jari Stehn, as well as your reference to Nominal Income Targeting by Robert E. Hall and N. Gregory Mankiw, also monetarists. The opening paragraph of the latter is quite humorous: There is increasing agreement among economists on two broad principles of monetary policy. The first principle is that monetary policy should aim to stabilize some nominal quantity. Monetarists have sought to make monetary policy stabilize the growth of the nominal money stock. In some periods of history, policy has been committed to pegging the nominal price of gold. Some economists have proposed stabilizing a bundle of commodity prices or even the consumer price index (CPI).Ants and Termites in Increasing Agreement As with currency cranks agreeing with themselves, there is increasing agreement by ants and termites that anteaters should go vegetarian. In short, put a bunch of monetarist currency cranks in a room, and the one thing they are sure to propose in an economic decline is currency expansion. Is it Different this Time? Dear Christina, in light of the facts I presented above in regards to the experiences of Japan, the excess reserves at the Fed, the increase in inflation with no increase in jobs, and the number of people on fixed income destroyed by the rise in price level while getting 0% on their CDs, you have a hell of a lot more explaining why "It's different this Time". The ultimate irony of your preposterous proposal, is there is a chance (albeit a small one), that Bernanke's realization that there are limits to monetary policy constitutes his Volcker moment. For the sake of the country, we should all hope so because history shows that additional monetary and fiscal stimulus will not help, no matter how many Monetarist currency cranks and Keynesian clowns think otherwise. By the way, anyone wondering why the recovery went nowhere and will go nowhere need only look at who was advising president Obama and who has his ear now (Christina Romer and Tim Geithner, respectively). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Posted: 31 Oct 2011 12:05 AM PDT Italy's Prime Minister Silvio Berlusconi denies entering an agreement for early elections and arrogantly insists he is the only one who can possibly save Italy from itself. Berlusconi ruled out early elections and said the current legislature in Rome will last until 2013, according to an interview published yesterday in Corriere della Sera.Sarkozy Under Fire for Seeking China's Help Please consider Sarkozy Criticized for Seeking China's Help French President Nicolas Sarkozy came under fire from opposition leaders for seeking China's help to resolve the euro area's debt crisis.Financial Suicide Aubry asks "How will Europe be able to ask China to stop undervaluing its currency?" That's a good question for Sarkozy but a far better one for Klaus Regling, head of the European Financial Stability Facility who says "Bailout Fund Could One Day Issue Bonds in Yuan". Then again, there is a fundamental question as to whether the Yuan is really undervalued in the first place. However, issuing bonds in Yuan would be financial suicide if per chance the masses are correct or if the timing was wrong. Moreover, begging for help is a big sign of weakness as well as an admission of fear that no other buyers may step up to the plate. Europe to Recapitalize Banks Without Raising any Capital Bloomberg reports Europe Tries to Recapitalize Its Banks Without Injecting Capital European Union leaders ordered banks last week to increase the ratio of "highest quality" capital they hold by the end of June, creating a shortfall of 106 billion euros ($150 billion). Of Europe's 28 largest lenders, only eight will need to raise a total of 11 billion euros from investors, Huw Van Steenis, a Morgan Stanley analyst, wrote in an Oct. 28 report.Capital Math Let's go over the math one more time as noted previously in Capital Shortfall Estimates of European Banks Range from 8 to 413 Billion Euros; EU to Offer Additional Extend-and-Pretend Time Analyst Estimates
The IMF came up with 200 billion Euros, a figure I think is exceptionally low because it ignores writedowns on Portuguese, Spanish, and Irish debt (and of course Italian debt as well). It also presumes Greek losses will be pegged at 50% when losses are likely to be in the 70-90% range. Nonetheless, the agreement worked out by Merkel reduced that 200 billion euro figure down to 106 billion. Now we see that of that 106 billion euros, banks claim they need only raise 11 billion euros. Is that before or after Merkel agreed to kick in an extra 21 billion euros of taxpayer money to the banking sector in the recent EFSF agreement? Regardless, the answer to the question "How Does Europe Recapitalize Banks Without Raising any Capital?" should now be perfectly clear ... Oh Ho Ho Its Magic! Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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